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PUBLIC RECORD OFFICE

Reference:

C.O.882/11

PUBLIC RECORD OFFICE, LONDON

ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC.

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2. The Governor urges that the contribution to the Fund is not normal expendi- ture. To meet this abnormal expenditure taxation has already been imposed, and it may be necessary to impose further additional taxation, or at any rate existing taxation must be retained at a level higher than would otherwise be necessary. In either case there is abnormal revenue to meet the abnormal expenditure.

3. The Governor submits that taxation to provide for the contribution to this Reserve Fund is solely for the benefit of future taxpayers and is comparable with taxa- tion to provide interest and sinking fund charges on a loan for permanent public works. In the one case future taxpayers are presented with an asset in the form of a valuable public work, in the other with an asset in the form of a revenue producing fund.

4. Sir L. Guillemard refers to the correspondence ending with War Office letter of the 1st of March, 1906,* in which it was agreed by the Lords Commissioners of the Treasury and by the Army Council, that the proceeds of taxation to provide for the interest and sinking fund charges on a loan to defray the cost of public works should be excluded from the revenue of the Colony for the purpose of the calculation of the Military contribution, and he submits that on similar grounds the proceeds of taxation providing for the contribution to the Opium Revenue Reserve Fund should be accorded the same treatment.

5. 1 am to request you to inform the Army Council that the Governor's representa- tions have their origin in a suggestion made by the Committee of the Legislative Council appointed to work out a scheme for the creation of the Fund. Since that date a definite feeling of opposition to the policy underlying the paying of annual contributions to this Fund, has developed and is now widely current among the unofficial community in the Colony.

6. When the motion for the creation of the Fund was brought before the Legis- lative Council on the 24th August, 1925, it was strongly opposed by one of the Unofficial Members of the Council. Generally speaking, however, there is little opposition to the creation of a fund. There is on the other hand a very strong feeling in the Colony that by the original allocation of the $30,000,000 (of which $20,000,000 was provided by transferring this amount from the Currency Guarantee Fund to the General Revenues of the Colony) the present generation of taxpayers has discharged its obligations to posterity. The view is also widely held that annual contributions to the Fund will involve the locking up of revenues which ought not to be raised except for expenditure on necessary works of development, and that such works will thereby be retarded and possibly prevented.

7. The strength of this feeling in the Colony is indicated by the fact that, when the motion in regard to the payment to the Fund of annual contributions of 10 per rent. of the total revenue of the Colony was brought before the Legislative Council on the 5th October, 1925, it was strongly opposed by four of the Unofficial Members of the Council, including one of the members of the Committee of the Council which drew up the scheme for the creation of the Fund.

A resolution pro- testing against the allocation to the Fund of 10 per cent. of the revenue of the Colony was passed by the Committee of the Penang Chamber of Commerce, and a resolution supporting this protest was passed by the Committee of the Straits Settle- ments (Penany) Association.

The Association of British Malaya have also protested against the principle of allocating a percentage of the total revenue of the Colony to the Fund, though the Association would see no objection to the payment to the Fund of any surplus of revenue which might remain after the current needs of the community have been met. A Sub-Committee, appointed by the Straits Settlements (Singapore) Association, on the other hand has drawn up a report protesting not only against the payment of annual contributions to the Fund, but also against the actual "creation of a Fund permanently to endow the Colony with a perpetual income for the benefit of posterity."

8. In a recent telegram dealing with another aspect of the opium policy of His Majesty's Government the Governor has observed that “ Malaya has accepted on Imperial grounds an opium policy which on local grounds is considered unnecessary and likely to cause trouble." In the Colony the financial arrangements are disliked by the Unofficial Members and by the whole community as retarding and possibly preventing necessary work of development.

9. Mr. Amery feels that the cogency of the grounds on which the opposition to the policy of the Opium Reserve Fund is based cannot be denied, and that the adoption of this policy (notwithstanding the grave disadvantages which have to be borne in the

* 7284/06: not printed.

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present and, as is anticipated, in future years) reflects great credit on the Legislative Council of the Colony.

10. It must be borne in mind (as is indicated in the accompanying memorandum) that the Opium Revenue Replacement Reserve Fund was created (practically at the direction of His Majesty's Government) for two purposes :-Firstly, in order to relieve His Majesty's Government of adverse criticism which (however misinformed) had received wide currency in the United States of America, and to some extent in this country; secondly, to ensure that the Colony would not be prevented, by financial difficulties, from giving effect to an obligation imposed on the Colony by His Majesty's Government for reasons of high Imperial policy, an obligation which will become operative on the decision of a Commission to be appointed by the Council of the League of Nations.

11. In reporting on the proceedings of the meeting of the Legislative Council at which the principle of annual contributions to the Fund was approved, the Governor reported that there would probably always be some unofficial opposition to this prin- ciple and that this opposition would no doubt increase as time goes on, especially if further revision of existing taxation is necessitated. The Governor now reports that he is advised that the acceptance of his proposals in regard to the non-assessment to- Military contribution of the contributions to the Fund would do much to mitigate the present unofficial opposition to the policy of the Opium Revenue Reserve Fund.

12. Mr. Amery feels that the opposition which has already been manifested will grow into resentment unless the Governor's proposal is accepted, i.e., if His Majesty's Government claims to take toll of revenue which the Colony has reluctantly been com- pelled to raise to meet the exigencies of Imperial policy and which will involve either additional taxation or delay in, if not the indefinite postponement of, necessary works of development. This feeling would undoubtedly be strengthened by the knowledge that in the Colony of the Straits Settlements alone, of all the communities in Malaya which have been induced to accept the policy of His Majesty's Government in this matter, the revenue accumulated through the Opium Reserve Fund will not accrue intact for the benefit of future generations of taxpayers.

13. Mr. Amery cannot, however, imagine that His Majesty's Government would seek any pecuniary advantage to themselves from the policy which they have forced upon the Colony in the matter of opium revenue and he is confident that the Army Council will concur in this view. He accordingly trusts that the Army Council will readily accept the Governor's recommendation.

Enclosure in No. 222.

I am, &c..

G. GRINDLE

MEMORANDUM REGARDING THE STRAITS SETTLEMENTS OPIUM REVENUE REPLACEMENT RESERVE FUND.

(Confidential.)

ARTICLE 6 of the International Opium Convention 1912 provides that "The Con- tracting Powers shall take measures for the gradual and effective suppression of the manufacture of, internal trade in, and use of prepared opium, with due regard to the varying circumstances of each country concerned."

For some years past it has consistently been alleged (particularly in America) that our Far Eastern Colonies have been deterred from carrying out their obligations under this Article by the consideration that as the preparation and sale of opium for smoking is a Government monopoly the gradual suppression and ultimate prohibition of opium smoking would inevitably be attended by a corresponding diminution and the ultimate extinction of the revenues derived from the sale of opium. The Straits Settlements Government in particular has been singled out for attacks on these lines because for some years past between 40 and 50 per cent. of the gross revenues of that Colony have been derived from the sale of opium. (As a matter of fact this high percentage of revenue derived from opium is largely attributable to the fact that the retail price of prepared opium has been progressively raised with a view to discouraging consumption.) 2. In the period leading up to the two Opium Conferences which were arranged to take place at Geneva in the winter of 1924-25, there were indications that the British Delegates to the Conferences would be seriously embarrassed by attacks on these lines: and, with a view to the British Delegates being placed in a position to meet these anticipated attacks, the British Representative on the League of Nations Opium Advisory Committee put forward a proposal that the Colonial Governments should